A burst of hiring in February underscored the resilience and confidence of U.S. businesses, which are adding workers at the fastest pace in 17 years. Yet the strong job gains did little to raise wages last month.
The unemployment rate fell to 5.5 percent from 5.7 percent, the government said Friday. But the rate declined mainly because some people out of work stopped looking for jobs and were no longer counted as unemployed.
The average hourly wage rose just 3 cents to $24.78 an hour. Average hourly pay has now risen just 2 percent over the past 12 months, barely ahead of inflation.
Still, over that time, 3.3 million more Americans have gotten jobs. More jobs and lower gas prices have led many consumers to step up spending. That’s boosting the economy, offsetting sluggish growth overseas and giving employers the confidence to hire.
Most economists have forecast that the economy will grow about 3 percent this year, supporting about 250,000 job gains a month. Those increases should raise pay this year, they say.
Friday’s figures provide “more evidence that the labor market is recovering rapidly, with employment growth more than strong enough to keep the unemployment rate trending down,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics. Falling unemployment “makes more acceleration in wages increasingly likely.”
At 5.5 percent, the unemployment rate has now reached the top of the range the Federal Reserve has said is consistent with a healthy economy. That could make it more likely that the Fed will raise interest rates from record lows as early as June.
“This is quite a symbolic change that increases the pressure on the Fed to hike rates in June,” said Paul Dales, an economist at Capital Economics said.
Indeed, after the jobs report was released Friday, investors sold ultra-safe U.S. Treasurys, a sign that many anticipate a Fed rate hike. The yield on the 10-year Treasury note rose to 2.24 percent from 2.11 percent before the report was issued.
Investors also sold stocks. The Dow Jones industrial average dropped 103 points in morning trading.
Yet the Fed’s decision is complicated by many factors. The 5.5 percent unemployment rate doesn’t reflect as healthy a job market as it typically has in the past. One reason the rate has fallen so low is that many people have stopped looking for work. The proportion of Americans who either have a job or are seeking one dipped one-tenth of 1 percentage point in February to 62.8 percent. That’s close to the lowest level in 37 years.
Economists calculate that about half that decline reflects the aging of the population as the baby boom generation increasingly retires. But another factor is that many Americans have been discouraged by their job prospects and have given up looking.
The Fed may also be reluctant to start raising rates as long as wage growth remain weak.
Megan Greene, chief economist at John Hancock Financial Services, noted that hourly pay fell in February from January in the construction and mining industries. Greene suggested that such figures will outweigh the falling unemployment rate in Fed Chair Janet Yellen’s mind and perhaps discourage a rate increase soon.
February’s hiring gains were broad-based. Some of the industries with the biggest gains include mostly low-paid work: Hotels and restaurants added 60,000 jobs, retailers 32,000. But higher-paying fields also added jobs: Professional and business services, which include accountants, engineers and lawyers, gained 51,000, construction 29,000 and financial services 10,000.
The U.S. job market and economy are easily outshining those of other major nations. Though Europe and Japan are showing signs of growing more than last year, their economies remain feeble. The euro currency union’s unemployment rate has started to fall, but at 11.2 percent it remains nearly twice the U.S. level.
The U.S. economy expanded at a breakneck annual pace of 4.8 percent in last year’s spring and summer, only to slow to a tepid 2.2 percent rate in the final three months of 2014. Many economists estimate that growth is picking up slightly in the current quarter to an annual rate of 2.5 percent to nearly 3 percent.
Still, economists remain bullish about hiring despite the slowdown in growth. The fourth quarter’s slowdown occurred largely because companies reduced their stockpiles of goods, which translated into lower factory output.
But companies focus more on consumer demand in making hiring decisions, and demand was strong in the October-December quarter. Americans stepped up their spending by the most in four years.
And though consumers are saving much of the cash they have from cheaper gas, spending in January still rose at a decent pace after adjusting for lower prices.